Billing v. Ravin, Greenberg & Zackin, P.A.

• Decision Date: 23 May 1994
• Docket Number: No. 93-5289,93-5289
• Citation: 22 F.3d 1242
• Parties: , 25 Bankr.Ct.Dec. 904, Bankr. L. Rep. P 75,822 Anders S. BILLING; Diann E. Billing v. RAVIN, GREENBERG & ZACKIN, P.A.; Ravin, Greenberg & Marks, P.A.; and Howard Greenberg, Defendants/Third-Party Plaintiffs, v. ROSS & HARDIES; Helen Davis Chaitman, Third-Party Defendants, Ravin, Greenberg & Zackin, P.A.; Ravin, Greenberg & Marks, P.A.; and Howard S. Greenberg, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 1242

22 F.3d 1242

62 USLW 2661, 25 Bankr.Ct.Dec. 904, Bankr.

L. Rep. P 75,822

Anders S. BILLING; Diann E. Billing v. RAVIN, GREENBERG & ZACKIN, P.A.; Ravin, Greenberg & Marks, P.A.; and Howard Greenberg, Defendants/Third-Party Plaintiffs, v. ROSS & HARDIES; Helen Davis Chaitman, Third-Party Defendants,

Ravin, Greenberg & Zackin, P.A.; Ravin, Greenberg & Marks,

P.A.; and Howard S. Greenberg, Appellants.

No. 93-5289.

United States Court of Appeals, Third Circuit.

Argued Nov. 3, 1993.

Decided April 20, 1994.

Sur Petition for Rehearing May 23, 1994.

S.M. Chris Franzblau (argued), Kenneth K. Lehn, Franzblau, Dratch & Friedman, Roseland, NJ, for appellants.

Helen Davis Chaitman (argued), Jody B. Keltz, Ross & Hardies, Somerset, NJ, for appellees.

Before: SLOVITER, Chief Judge, STAPLETON, Circuit Judge, and RESTANI, Court of International Trade Judge. ^*

OPINION OF THE COURT

RESTANI, Judge:

This is an interlocutory appeal from a judgment of the United States District Court for the District of New Jersey, denying defendant-appellants' motion for a referral to the bankruptcy court, dismissal, abstention, or stay. Billing v. Ravin, Greenberg & Zackin, P.A., 150 B.R. 563, 570 (D.N.J.1993). Defendant-appellants Ravin, Greenberg & Zackin, et al., ("Ravin, Greenberg") acted as bankruptcy counsel on behalf of plaintiff-appellees Anders S. Billing and Diann E. Billing ("the debtors"). After Ravin, Greenberg filed an application for fees with the bankruptcy court, the debtors objected on the ground that the attorneys had engaged in legal malpractice.

The debtors filed a separate malpractice action in district court, invoking their right to a jury trial under the Seventh Amendment to the U.S. Constitution. The district court agreed that the debtors were entitled to trial by jury and held that bankruptcy courts did not have the authority to conduct jury trials. Id. at 567-68, 570. Therefore, it denied Ravin, Greenberg's motion for referral of the

                malpractice action to the bankruptcy court, dismissal, abstention or stay.  Id. at 570.   Ravin, Greenberg now appeals the district court's denial of its motion
                

I.

In June 1989, the debtors filed several voluntary petitions under Chapter 11 of the bankruptcy code. Billing, 150 B.R. at 564. The debtors retained Ravin, Greenberg as bankruptcy counsel pursuant to an order of the bankruptcy court. Id. The debtors' reorganization plan, which the bankruptcy court approved on August 10, 1992, provided for the payment of attorney's fees only in such amounts as are allowed by the bankruptcy court in accordance with statutory standards. Id.; Joint Modified Plan of Reorganization, art. 2, Joint Appendix at 22.

After obtaining approval of the reorganization plan, Ravin, Greenberg presented to the bankruptcy court an application for attorney's fees in the amount of $199,043.50 plus $19,978.20 in expenses. The debtors subsequently sued the attorneys in the United States District Court for the District of New Jersey on the grounds of legal malpractice, requesting trial by jury. The complaint was filed on October 16, 1992, and entered on October 20. On or about October 16, the debtors submitted their objection to fees to the bankruptcy court, alleging that Ravin, Greenberg spent excessive amounts of time in meetings, reviewing the pleadings, and reviewing the file. Billing, 150 B.R. at 564. The debtors' primary objection, however, rested on their allegations of legal malpractice. Id. They strongly protested the award of attorney's fees while their malpractice complaint against Ravin, Greenberg was pending in district court.

On November 23, 1992, Ravin, Greenberg gave notice of its motion to dismiss the debtors' malpractice action, or, in the alternative, to stay the proceedings until the bankruptcy court had resolved the fee dispute. The district court issued an opinion denying the motions on January 27, 1993. The court held that: 1) the proceeding is a core proceeding under the meaning of the bankruptcy code; 2) the debtors' claims are legal and thus give rise to a right to jury trial; and 3) bankruptcy courts cannot conduct jury trials, and therefore the dispute must be resolved in district court. Id. at 567-570. The district court denied Ravin, Greenberg's motion for reconsideration in light of the recently decided case of Travellers Int'l AG. v. Robinson, 982 F.2d 96 (3d Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1946, 123 L.Ed.2d 651 (1993). Billing v. Ravin, Greenberg & Zackin, P.A., Civ. Action No. 92-4278 (D.N.J. Feb. 23, 1993) (denial of motion for reconsideration).

On March 25, 1993, the district judge granted Ravin, Greenberg's motion to certify the following questions for interlocutory appeal: 1) whether the debtors' action for malpractice constitutes a core proceeding; 2) whether a bankruptcy court is empowered to conduct a jury trial in a core proceeding; and 3) whether the debtors "waived" their right to a trial by jury by submitting to the equitable jurisdiction of the bankruptcy court. Billing v. Ravin, Greenberg & Zackin, P.A., Civ. Action No. 92-4278, at 2 (D.N.J. Mar. 25, 1993) (order certifying questions for interlocutory appeal and denying stay pending appeal).

II.

The district court took subject matter jurisdiction over this case pursuant to 28 U.S.C. Sec. 1334 (1988). Billing v. Ravin, Greenberg & Zackin, P.A., 150 B.R. 563, 564 (D.N.J.1993). Section 1334 grants jurisdiction to the district courts over cases under title 11 of the United States Code, arising under title 11, or arising in or related to cases under title 11. 28 U.S.C. Sec. 1334(a), (b). The district court determined that the debtors' malpractice claims arose under title 11 because of the claims' connection with the debtors' bankruptcy petitions. See Billing, 150 B.R. at 564. We find that jurisdiction in the district court was proper under Sec. 1334.

We have appellate jurisdiction pursuant to 28 U.S.C. Sec. 1292(b) (1988). An appellate court may permit an interlocutory appeal if the district court certifies that its order involves a controlling question of law as to which there exists substantial controversy and that an immediate appeal will advance Because this case centers on issues of law rather than fact, the standard of review is plenary. In re Data Access Sys. Sec. Litig., 843 F.2d 1537, 1539 (3d Cir.), cert. denied, 488 U.S. 849, 109 S.Ct. 131, 102 L.Ed.2d 103 (1988). Although the scope of review on an interlocutory appeal is generally constrained to the questions certified for review by the district court, we may consider any grounds justifying reversal. Id.

the termination of the litigation. Id. On March 25, 1993, the district court issued an order certifying this case for interlocutory appeal. This court granted permission to appeal on May 12, 1993. Thus, we have appellate jurisdiction.

III.

As a preliminary matter, we note that the parties do not contest the district court's holding that the debtors' malpractice claim constitutes a core proceeding under the meaning of the bankruptcy code. ¹ Therefore, the first question certified for interlocutory appeal will not be addressed by this court. The second question, whether bankruptcy courts have the power to conduct jury trials, is not reached, as we find in answer to the third question that the debtors have no right to a jury trial in this instance.

A.

The Seventh Amendment provides, "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S. Const. amend. VII. The Supreme Court interprets "suits at common law" to mean cases involving legal rights; no jury right attaches to equitable claims. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989). In determining whether a claim is equitable or legal,

[f]irst, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. The second stage of this analysis is more important than the first. If, on balance, these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we must decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as factfinder.

Id. at 42, 109 S.Ct. at 2790 (citations omitted). An action for money damages based on a breach of contract is traditionally a legal claim. See Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477, 82 S.Ct. 894, 899, 8 L.Ed.2d 44 (1962). Actions sounding in tort "for damages to a person or property" are also generally considered to be actions at law. See Ross v. Bernhard, 396 U.S. 531, 533, 90 S.Ct. 733, 735, 24 L.Ed.2d 729 (1970).

One bankruptcy court decision has directly addressed the issue of whether a claim for legal malpractice of bankruptcy counsel satisfies the first two prongs of the Granfinanciera test. The court stated:

[g]enerally, negligence which gives rise to legal malpractice is based upon the attorney's breach of his duty of care. The essence of such an action is in tort.

In re SPI Communications & Mktg., Inc., 112 B.R. 507, 512 (Bankr.N.D.N.Y.1990). The bankruptcy court determined that the malpractice claim sounded in law rather than equity and that money damages for malpractice constituted a legal remedy. See id. Without discussing the third prong of Granfinanciera or the possible limitations of Granfinanciera implicit in other Supreme Court precedent, the bankruptcy court concluded that the attorney had a right to jury trial on the malpractice claim against him. Id.

The first two prongs of the Granfinanciera test do not provide a complete answer, however. Inquiry into the third prong of the test may reveal exceptions to the rule. In the third prong, the Supreme Court discussed whether Congress had...